Policymakers have long been concerned with the impacts of energy imports on U.S. trade, especially beginning in the late 1950s as the country moved to negative energy trade imbalances. Despite attempting to remedy these imbalances, they exacerbated the 1970s energy shortages creating ongoing concerns of potential future vulnerabilities.
However, beginning in the 2000s, new extraction technologies knowing as hydrofracking were applied to shale geological formations. With innovation and enhancements these technologies have led to a resurgence of U.S. crude oil and natural gas production.
This resurgence is broadly visible in a variety of realms. With respect to U.S. trade, the U.S. energy trade balance began moving from a deficit to a surplus in late 2018. Where during 2010, the U.S. reported a $20-plus billion monthly deficit, which breached $30 billion in 2012, the bounty of U.S. energy production has caused the balance to rise to a current $9.5 billion surplus with the trend continuing upward
Oil and gas production from the U.S. petroleum resource base has experienced an unprecedented expansion in output which has now positioned the U.S. as the world’s largest oil and gas producer. The North American petroleum production platform is soon to become a net oil and gas exporter to the world market. This rapid expansion in oil and gas production has enhanced U.S. energy security, provided greater stability to the world oil market, and conveyed sustained economic benefits to the national economy. The expansion in output has been possible through a series of advances in extraction technology including the use of hydraulic fracturing which permits oil and gas production from so-called source rock.
Concerns over carbon emissions from sustained increases in domestic oil and gas production has now been reflected in the 2020 Presidential race, with some candidates and many public interest groups calling for an end to hydraulic fracturing. Operationally, these initiatives would include a ban on oil and gas development on public lands, prohibition of new infrastructure, such as pipelines, export terminals and even refineries. This effort, championed by several Democratic candidates for President would include features of so-called Green New Deal (GND) to quickly move that national energy complex to a fully renewable fuel system.
In this paper, EPRINC fellow, Michael Lynch, explores the economic consequences of policies aimed at severely reducing U.S. oil and gas production. Such an estimate is important because whatever the merits (benefits) from reducing carbon emissions through oil and gas production constraints, policy makers will have to confront the costs and public acceptance of such a policy.
EPRINC’s Max Pyziur has created a note describing the background information behind the NaftoHaz/GazProm issues, specifically ahead of the 12/31/2019 transit agreement expiration. This work was penned in December 2019 just before that expiration date.
EPRINC’s Max Pyziur created the attached presentation on the EU Natural Gas Overview in September 2019.
Dr. Octavio F. Pastrana is joining EPRINC as the organization’s newest Distinguished Fellow. Octavio has forty three years of professional experience in world class companies in the oil and gas, and energy sectors, and as top executive for engineering and construction companies in South America and Mexico, in power generation and infrastructure.
Octavio has extensive experience in the oil and gas industry. For the past five years until May 2019, Octavio was member of the Board of Petroleos Mexicanos, PEMEX. His deep engagement as advisor to the top executives and as leader of company planning far exceeded his duties as a non-executive board member, and while serving for four years as Chairman of its Strategy and Investment Committee, Octavio drove the transition of the company on a month to month basis to a new focus on performance and results. During his thirteen years with BP, Octavio worked for five years as Chairman and CEO of Chaco, the oil and gas company which was formed during the privatization of the Bolivian national oil company YPFB, and for seven years as Country Head and General Director of oil and gas business units in Alaska, Venezuela, and México.
During 2013 and 2014, Octavio advised the Energy Commission of the Mexican Senate in development of the Constitutional Reform and subsequent Laws, engagement which led to his appointment as board member of PEMEX.
The rest of Octavio’s bio can be found here.
EPRINC is excited to announce the addition of Salvador Beltran-del-Rio as a Distinguished Fellow. Salvador is Dean of the School of Government and Economics, Universidad Panamericana. He has 30 years of leadership experience in public and private sectors in Mexico where he engaged in the energy sector as well as on various areas at national-international level. More of Salvador’s background can be found here.
Emily Medina was interviewed recently on Think Tech Hawaii. Some clips from that broadcast can be found below:
Emily on the attack on the Saudi oil facilities.
IEEJ and EPRINC are in the third year of a joint assessment of the future role of LNG in Asian power and fuel markets. The effort has been supported by both METI and DOE and is part of the Japan-United States Strategic Energy Partnership (JUSEP). It remains an important joint initiative in supporting the growth of LNG in the Asia Pacific region.
Among the more important objectives of this joint effort are identifying recent trends and longer-term uncertainties in Asian natural gas markets, proposing joint policy initiatives, and highlighting the critical role of U.S. LNG exports in serving those markets. To this end, EPRINC and IEEJ have co-hosted a workshop that included presentations and discussion on the U.S. LNG value chain, opportunities and challenges for financing the expansion of U.S. LNG exports and the development of new regasification facilities in Asia. The program also explored strategies to bring more liquidity to the financing of U.S. LNG exports.
The workshop presentations and accompanying discussion will contribute to the final joint IEEJ-EPRINC report and recommendations. These findings and recommendations will be presented at the 8th Annual Producer Consumer Conference on September 28, 2019 in Tokyo, Japan. The agenda for the workshop can be found here, the presentations given that day are here, and the photos from the workshop are here.
A subsequent workshop was held in Jakarta on August 22, 2019. The presentations from that workshop can be found here.
Mexico is an essential piece of the North American petroleum production platform, and Mexico’s oil and gas reserves and production are at a critical crossroads. Oil reserves would be exhausted in ten years and gas reserves in six without massive new capital commitments. Of a total of 465 oil fields discovered, today a handful of ten currently account for nearly two-thirds of all domestic production; likewise, of the 700-plus gas fields discovered, ten account for almost half of all gas production.
The energy reform measures implemented in Mexico over the last few years, also known as the New Energy Model, offer considerable potential to lift oil and gas production, increase employment and deliver technological advances, and additional revenues for Mexico’s federal, state, and local governments. The New Energy Model has brought new investment into Mexico’s petroleum provinces, and there has been significant investment in seismic surveys and commitments for new wells. This expanded activity in the petroleum sector, entirely from private investment, has led to new discoveries.
Mexico’s new president, Andrés Manuel López Obrador (often referred to as AMLO), has expressed skepticism towards the energy reforms of the previous administration and has halted most initiatives to bring new private capital into the development of Mexico’s oil and gas resources. Although Mexico has not had a full public debate on all aspects of AMLO’s criticism of the New Energy Model, this EPRINC assessment demonstrates that without massive new commitments of capital for petroleum development, Mexico’s oil and gas future is grim.
The Spanish-language version of the assessment can be found here.
EPRINC’s Lucian Pugliaresi and Max Pyziur have crafted an op-ed that was published in InsideSources in response to a study published by the Renewable Fuels Association that was written by Philip Verleger which stated that the Renewable Fuel Standard (RFS) has lowered U.S. gasoline prices. According to EPRINC’s analysis of the RFS, the problem with U.S. fuels policy is not ethanol, but the RFS mandate. And that is what drives the cost of transportation fuels up, not down as Philip Verleger contends.
The op-ed can be found on InsideSource’s website here and the unabridged version can be found in PDF format here.
The prospect for conflict in the Middle East, pending collapse of production in Venezuela, and turmoil in North Africa all remind us the world oil market still faces substantial threats of disruption. The North American petroleum renaissance, which has lifted U.S. oil production to the point where net exports are rapidly moving into positive territory, has also opened opportunities for Congress to sell off a substantial volume of strategic stocks to fund a range of domestic programs. EPRINC has argued that while some adjustments to the reserve size may be justified, on balance, it still plays a critical role in the security of the United States and decisions on the size of the SPR should take the long view. The SPR remains an important strategic asset.
Given the current geopolitical environment, we are highlighting some previous EPRINC papers published on this topic. In addition, our friend and colleague, Dr. Carmine Difiglio, has shared with us his insightful analysis of the value of strategic stocks in sustaining economic growth. Professor Difiglio, formerly with the U.S. Department of Energy, is Director of the Istanbul International Center for Energy and Climate (IICEC) at Sabanci University.
John Shages, former Deputy Assistant Secretary for Strategic Reserves, writes on Policy Challenges in Managing the Nation’s Strategic Oil Stock (July 2014).
For access to the report, click here
Lucian Pugliaresi of EPRINC and Fred Beach of UT, Austin debate the value of the SPR in the Wall Street Journal (November 2015).
For access to the report, click here
Larry Goldstein and Lucian Pugliaresi of EPRINC comment on Congress’s initiative to fund health care by reducing the size of the SPR in Politico (July 2015)
For access to the report, click here
Carmine Difiglio’s extensive analysis of the negative consequences of world economic growth from oil supply disruptions. Oil, economic growth and strategic petroleum stocks, Energy Strategy Reviews (2014).
For access to the report, click here
Michael Lynch, EPRINC Distinguished Fellow and President of Strategic Energy and Economic Research, Inc. presents a retrospective on the 1979 oil disruption and the role uncertainty and hoarding can play is amplifying the cost of an oil supply disruption. The article was recently published in Forbes and can be found here
EPRINC is excited to announce the addition of Rafael Sandrea as a Distinguished Fellow. Rafael is President of IPC Petroleum Consultants, Inc., a Tulsa based international petroleum consulting firm which specializes in oil and gas reserves appraisals and risk analysis for international upstream petroleum investments. He is very active giving Webinars, Masterclasses online, and speaking on the themes of reserves, IOR/EOR, shale oil and gas assessment, and global oil & gas supply, around the world. More of Rafael’s background can be found here.
EPRINC Non-Resident Fellow Emily Medina has crafted a primer on the Mexican Gasoline and Diesel Market as part of the EPRINC Mexico Initiative.
The U.S.-Mexico-Canada Agreement (USMCA) contributes to both the strength and sustainability of the North American petroleum renaissance. North American cross-border energy trade is extensive and the movement of crude oil, refined petroleum products, and natural gas contributes to the expanding national economies in the USMCA.
An essential element to ensure efficient energy production throughout the production platform is allowing energy flows to move unimpeded. The expanding trade in petroleum products, especially gasoline and diesel, is a case in point. This trade has been beneficial to the U.S. refining industry by allowing processing facilities to operate efficiently at high volume. Mexican consumers benefit from product exports from the U.S. (and Canada) by gaining access to secure and competitively priced gasoline and diesel fuel. Some Mexican officials have raised energy security concerns arguing that Mexico is too dependent on U.S. supplies and that domestic production should be encouraged or subsidized as a substitute for imports.
Addressing energy security concerns is a complicated issue and will be the subject of a more in- depth treatment of the Mexican petroleum products market in a subsequent report. This policy brief presents an overview of the current gasoline and diesel market in Mexico.
Click here to access the paper.
EPRINC Distinguished Fellow Michael Lynch has penned a report on resource pessimism. A summary of the report is as follows:
The modern era has seen two major threads of neo-Malthusian thought: fears that agriculture cannot sustain the future population and concerns about possible scarcity of nonrenewable resources like minerals and energy. This has caused various governments to undertake population control policies, crash programs to develop substitute fuels, and even suggestions that exploitation of asteroids for their mineral resources might soon be necessary. The proposed Green New Deal was seen to be motivated in part by a concern for the finite nature of resources.
But the various apocalyptic predictions based on these theories have virtually all failed, although proponents insist that only their timing is in error, not the concept. This report finds that most neo-Malthusian arguments are based on an incorrect understanding of resource estimates, including the nature and terminology, leading to the use of woefully conservative figures which then generate the apocalyptic warnings. Combined with the assumption that, since technological advances can’t be predicted, technological progress should not be assumed, arguments that consumption must be curtailed and even that economic growth should cease are based on fallacious notions.
This paper argues that neo-Malthusians suffer from an underspecified model, not just bad input parameters but omitted variables that guarantee the pessimistic, and invalid, predictions.
Correcting these errors results in a much better understanding of resources and a more optimistic outlook for the global economy and hopefully less economic waste.
The report can be found here.
Driven by a growing political requirement to fight air pollution, record growth has been recorded in natural gas demand in China over the past decade. China surpassed South Korea as the second largest LNG importer in 2017 and is projected to surpass Japan as the world’s largest natural gas importer in 2019. The massive scale of the Chinese energy sector matters; a small change in the Chinese natural gas demand can lead to an oversized impact on global markets. As part of EPRINC’s ongoing assessment on the future role on LNG in Asia, this publication evaluates market and policy trends placing China in a central role as the driver of world LNG demand growth. The report can be found here. A translation of the executive summary in Chinese can be found here.
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